Uncertain outlook SINGAPORE OFFICE Q Colliers Quarterly. Expect rent declines to slow. Forecast at a glance.

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1 Net Lettable Area (million sqft) Colliers Quarterly SINGAPORE OFFICE Q February 2017 This report has been updated on 7 February 2017 and supersedes all previous versions Uncertain outlook Tricia Song Director Research With limited demand drivers and large new supply completions, we expect CBD Premium and Grade A office rents, which have declined % in 2016, to continue to decline through 2017, albeit at a slower pace. As tenants continue the flight to quality, we expect older buildings to see faster rent declines than the new builds. We advise occupiers to take the opportunity to review their space requirements. Forecast at a glance Demand Demand continues to lag behind supply comprising more relocations than expansions Supply Premium and Grade A supply in CBD to grow another 10.6% in 2017 on major completions Vacancy rate CBD vacancy rates as of: end-2016: 7.0% end- 2017F: 11.1% Rent CBD Premium and Grade A office rents to fall 3-5% in 2017 Expect rent declines to slow Excluding the new completions in Q4 2016, CBD Premium and Grade A office rents have declined 1.7% QOQ, 6.8% YOY and 11.0% since the last peak in Q CBD Premium and Grade A occupancy fell 3.3ppt to 93.0%, led by falls in Shenton Way, Bugis/Beach Road and Marina Centre/City Hall, reflecting tepid demand. We estimate net absorption in the CBD Premium and Grade A space of 449,000 sq ft in With another bumper year of supply in 2017, we expect CBD Premium and Grade A rents to continue to decline, albeit at a slower rate of -3 to -5%, as CBD occupancy bottoms out. Post 2018, we believe the steady supply could enable a slow recovery of the rents, so long as new international demand picks back up in 2017 and onwards. In the first two weeks of the year, business sentiment has picked up with the strong Q4 GDP and equity market in Singapore. Overall capital values of Premium and Grade A office buildings in Central Business District (CBD) have fallen an average of 3.4% in 2016, more resilient than rents. Given upward pressure on interest rates, we see limited scope for cap rate compression, but prime office capital values could remain firm on scarcity and Singapore remains attractive as a global financial centre. Islandwide Office Space Supply ( F) CBD (all grades) City Fringe Suburban Price Prime office capital values to remain firm on investment demand F 2017F 2018F 2019F 2020F 2021F, URA

2 Leasing market and rental values Sixth quarter of rental decline since recent peak in Q Overall office rentals across Singapore continue to slide under pressure of overhang supply and lackluster demand as the market saw the sixth consecutive QOQ rental decline in Q Excluding the new completions in Q4 2016, CBD Premium and Grade A office rents have declined 1.7% QOQ, 6.8% YOY and 11.0% since the last peak in Q Monthly Gross Office Rents by Micromarket Micro Market Q Premium Raffles Place/New Downtown Grade A Monthly Gross Office Rents (SGD psf) QOQ Change (%) YOY Change (%) % -10.9% % -6.8% %* (-1.4%) -1.6% Marina / City Hall % -6.7% Beach Road %* (-2.3%) -1.2% Orchard Road % -5.4% City Fringe % -7.1% Suburban % -2.8% Grade B % -6.9% % -5.5% Beach Road % -9.1% Orchard Road % -5.3% City Fringe % -6.8% Suburban % -2.1% *Included Guoco Tower and DUO Tower in Q4 which raised the average rents in their respective basket. Bracket shows change excluding the new adds. Across the various micro-markets, in Q4 2016, rents at office buildings in Beach Road, Raffles Place and Shenton Way/ fell the most QOQ by %, % and % respectively. These declines came about as some of the older buildings lost tenants to the new builds in the respective micro-markets - DUO Tower, Marina One and Guoco Tower respectively. Moderate office space expansions Reflecting the weak economy in Singapore, which underperformed most of the rest of Asia over the first nine months of 2016, business sentiment and overall office space expansion remained restrained through 2016.The Singapore GDP advance estimate for Q4 released on January 3 showed Singapore GDP expanded by 9.1% QOQ on a seasonally adjusted annualised (SAA) basis compared to a 1.9% contraction in Q3, averting a technical recession (two consecutive quarters of sequential GDP growth). Manufacturing jumped 14.6% QOQ SAA, while the services sector - which accounts for two-thirds of the economy - also expanded 9.4% QOQ SAA after three straight quarters of contraction. Full year 2016 GDP is likely to come in at 1.8%, stronger than the Ministry of Trade and Industry's previous 1% to 1.5% forecast and most economists forecasts. However, economists expect the recovery in trade and service sector will be bumpy and subject to setbacks. Uncertainties in 2017 remain surrounding upward pressure on interest rates in many countries, the outlook for the US economy and increased protectionism. Occupancy Rates for Premium and Grade A Office Space by Micro-market Micro Market Premium Raffles Place/ Grade A Q Occupancy Rate (%) Q Occupancy Rate (%) 93.9% 95.3% 96.9% 97.4% 93.5% 98.5% Marina / City Hall 94.4% 96.2% Beach Road 57.4% 90.1% Orchard Road 96.2% 96.7% City Fringe 95.0% 94.5% Suburban 94.8% 95.3% 2 Colliers Quarterly Quarter Singapore Office Colliers International

3 MAJOR OCCUPIER MOVEMENTS FOR PREMIUM AND GRADE A OFFICE BUILDINGS IN Q BUILDING TENANT NET FLOOR AREA ( SQ FT) Marina One JustCo 38,000 New to market Marina One Prudential 90,000 Relocation Marina One BP 80,000 New to market UIC Building Mitsui OSK Lines 68,000 Relocation Guoco Tower Uber 55,000 Expansion Guoco Tower Danone 30,000 New to market Relocation(1) /Expansion(2) /New to Market(3) Sources: Colliers International Singapore Research, The Business Times, The Straits Times (1) Relocation refers to tenants moving to a similar Premium or Grade A office building with no expansion in size (2) Expansion refers to tenants expanding to a similar Premium or Grade A office building (3) New to Market refers to tenants that are previously not located in a Premium or Grade A office building Based on Colliers International's research, islandwide occupancy declined 1.8%pt QOQ to 93.3% in Q4 2016, mainly due to higher vacancies in CBD Grade A space on inclusion of newly completed buildings. occupancy in CBD Premium and Grade A office fell 3.3ppt QOQ to 93.0%, led by falls in Shenton Way, Bugis/Beach Road and Marina Centre/City Hall. Expectedly, Shenton Way saw occupancy decrease in Q4 due to inclusion of Guoco Tower, which has a vacancy of c.12%. Older Grade A buildings in Shenton Way saw occupancy come off as they lost some tenants to Guoco Tower. Bugis/ Beach Road Grade A occupancy dropped due mainly to DUO Tower's completion while its Grade B space saw some improvement from a bad Q3. Through 2016, overall business expansion into the new office buildings remained modest as potential new tenants seek to minimize overall occupancy cost and optimize space efficiency. In Q4, we see movements in tenants across various trade sectors, with expansions coming mainly from IT and ecommerce related companies. It was reported in December that Uber signed the lease for a 55,000 sq ft office space on both Level 35 and 36 of Guoco Tower, more than doubling the size of their current office in Mapletree Anson, in a deal in which the lease lasts for three years, with an option to renew for an additional three years. Other new tenants in Guoco Tower include Danone which will relocate from Goldbell Towers and more than doubling its space. Oil major, BP, will relocate from its Harbourfront Tower office to Marina One, taking up 80,000 sq ft. Prudential will also relocate from Prudential Tower in Raffles Place to Marina One, taking up 90,000 sq ft. JustCo, a co- working space operator, will start a 38,000 sq ft new site in Marina One. In the meanwhile, there were also tenants leaving the CBD entirely, eg. In November, Google officially moved into their new premises at a new business park space in the city fringe, Mapletree Business City II, vacating from Asia Square Tower 1 in Raffles Place/Downtown. As at Q4 2016, the pre-commitment level for Guoco Tower, which obtained the Temporary Occupation Permit (TOP) in September 2016, was about 87% while DUO Tower which obtained TOP in December 2016, had about 35% pre-commitment level. Meanwhile, we estimate 35% of its 1.88 million Net Lettable Area (NLA) sq ft in Marina One have either obtained signed leases or are under documentation. The office tower is expected to be completed by Q It was reported in Business Times on January 20 that Facebook could be taking up 250,000 sq ft or 13% of the 1.88 million sq ft in Marina One. Landlords increasingly investing in co-working operators After CapitaLand's tie up with co-working space operator Collective Works under a joint venture to turn the entire 12th floor (22,000 sq ft) at Capital Tower into coworking space in March 2016, City Developments Limited (CDL) announced an investment in a co-working space operator which will open one of the largest coworking spaces in Singapore in CDL announced on January 19 that it has signed an agreement to invest 72 million yuan (SGD14.8 million) for a 24% stake in Distrii, an operator of co-working spaces in China. Distrii will lease more than 60,000 sq ft of space at CDL-owned Republic Plaza Tower 1 in Singapore's prime Raffles Place. Expected to be one of the largest co-working spaces in Singapore, it will 3 Colliers Quarterly Quarter Singapore Office Colliers International

4 integrate food and beverage, entertainment, recreational and office facilities. It is expected to open in the first half of 2018 after the space is vacated. Steady supply after 2017 In 2017, we expect bumper supply of over 2.35 million sq ft of Premium and Grade A office space to be completed, mainly from the 1.88 million sq ft of Marina One. In 2018, the 664,000 sq ft NLA Frasers Tower at Cecil Street should be completed. Come H1 2019, we expect the Park Mall redevelopment to bring over 350,000sqft of office space in the Orchard area. In addition, 204,000 sq ft of office space in Funan will also likely complete by Q The former Funan DigitaMall has been demolished and handed over to the contractor in January Re-branded simply as Funan after the redevelopment works, it will feature a lifestyle mall of 327,000 sq ft NLA, two six-storey premium Grade A office towers and a nine-storey tower of co-living apartments. CPF Building, which was bought by Ascendas Land in 2015, will be redeveloped and remain an office building with supporting retail amenities. The development will have more than 500,000 sq ft of Grade A office space, and is expected to be completed by end of The major tenant, CPF Board, has moved to Novena Square since November During the quarter, the Central Boulevard white site was hotly contested with seven bids and eventually awarded to IOI Properties which put in a bullish top bid of nearly SGD2.57 billion or SGD1,689 per square foot per plot ratio (psf ppr). Assuming an efficiency of 85%, the site could yield 1.29 million sqft, which would be close to the size of Asia Square Tower 1. The breakeven cost was reported to be SGD2,500-3,000 psf per NLA, which we believe reflected bullish expectations of prime office rents come completion, likely to be in CapitaLand Commercial Trust (CCT) announced on 19 October 2016 that it has submitted plans to the authorities to redevelop the 10-storey Golden Shoe Car Park into an office tower of 1 million sq ft of GFA. The trust said if the necessary approvals are obtained, the project will start in the second half of next year, and could complete by In the latest Government Land Sales Programme (GLS) released on 16 December 2016, we note no new commercial sites were added to either Confirmed or Reserve Lists for 1H 2017 after Central Boulevard was triggered and sold in November The Woodlands Square and Beach Road sites remain on the Reserve List, carried forward from earlier GLS. We believe the government is mindful the market would take time to digest the near term huge office completions in the CBD, as well as potential future redevelopments along Shenton Way and Raffles Place. Strata sales and capital values Capital values to remain firm Overall strata office sales volume in the quarter declined by 30% QOQ from a total transaction volume of 87 in Q to 61. This brings full year 2016 total strata sales volume to 272, 11% more than 2015's 245. In Q4 2016, strata unit prices transacted for new projects such as Vision Exchange in Jurong (suburb) ranged from SGD2,200-2,500 psf, while those for GSH Plaza in Raffles Place ranged from SGD3,000-3,500psf. The proportion of new sales to overall transactions was 28%, vs 46% in Q3. Investment sentiments for office buildings remained robust into Q with conclusion of two major private office asset sales: 1) Robinson 77 was sold to CLSA Capital Partners for SGD530.8 million (SGD1,810 psf on NLA), and 2) Capital Square (50% stake) was sold to ARA Asset Management for SGD475.5 million (SGD2,450 psf on NLA). Even as the market is expecting a pick-up in interest rates, overall cap rates as of 31 December 2016 have not moved up due to 1) there are still keen investors in the market, and 2) owners have holding power. Selected buildings saw some downward adjustments in capital values due to lower rental and/or occupancy levels achieved. As a result, the average capital value for Grade A office space in Raffles Place/ saw a decline of 1.1% QOQ and 0.5% YOY to SGD2,518 psf in Q4 2016, while the average capital value for Premium office space in Raffles Place/ was down 0.8% QOQ and 3.8% YOY to SGD2,714 psf. capital values for the other micro-markets across Singapore, stayed soft as rents declined. 4 Colliers Quarterly Quarter Singapore Office Colliers International

5 Q Q Q Q Q Q Q Q Q Q Q SGD per sq ft Capital Values (1) for Premium and Grade A Office Space in Raffles Place/ 3,000 2,800 2,600 2,400 2,200 2,000 Raffles Place/ - Premium Raffles Place/ - Grade A Note: (1) A valuation based methodology is used to derive the average capital values For more information: Duncan White Director Office Services duncan.white@colliers.com Tricia Song Head of Research Research tricia.song@colliers.com Anthea To Head of Consulting Advisory and Consulting anthea.to@colliers.com Colliers International Singapore 1 Raffles Place, #45-00 One Raffles Place Singapore Tel: Fax: RCB No. : R CEA Licence No: L J Copyright 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.